Microsoft's PDC was the source of the biggest news this week as the copany unveiled its Windows Azure cloud-computing platform. The company also let out some more details about the forthcoming Windows 7 OS and talked up its ambitions with Silverlight. Meanwhile, Google proposed settling lawsuits related to its book-scanning and indexing project, and word also seeped out through the Wall Street Journal that the company's search advertising deal with Yahoo could be scrapped because of regulatory issues.

[ Video: Catch up on the week in tech news with the World Tech Update ]

1. Microsoft launches Windows Azure for the cloud: Microsoft unveiled its Azure Service Platform, marking its entry into cloud computing, with Chief Software Architect Ray Ozzie saying that the platform will form the core of the company's services platform and be an online delivery option for all current Microsoft software. The company has been revealing bits of the strategy over the past three years and this week at its Professional Developers Conference set forth more details of how those parts fit within the Azure concept.

[ Get the inside scoop on Microsoft's cloud strategy straight from the project lead | For more news from Microsoft's Professional Developers Conference, check out InfoWorld's special report. ]

2. WSJ: Google and Yahoo may call the whole thing off: Google and Yahoo might back out of a proposed search advertising pact that the U.S. Department of Justice has not yet approved, the Wall Street Journal reported Friday. The companies signed the deal in June, agreeing that Yahoo would run Google's search ads and they would split the revenue. The DOJ has been reviewing the proposal for antitrust issues, and the companies voluntarily agreed to delay implementing the plan while that review is conducted. But the DOJ wants the companies to sign a consent decree and allow judicial oversight of the ad deal, according to the Journal.

3. Microsoft previews Windows 7 client OS: Microsoft's PDC wasn't all about Windows Azure; the company also showed off Windows 7, the next iteration of the Windows OS. The company discussed the five themes of the upcoming OS (mobile computing, services design, personalization, entertainment optimization, and compatability and stability) and further vowed that Windows 7 will fix the mistakes in Windows Vista.

[ Will the new Microsoft OS be better than Vista? Join the Windows 7 conversation in Randall C. Kennedy's Windows Sentinel blog. | See Tom Yager's first look at Windows 7. ]

4. HP, Dell, Toshiba recall Sony laptop batteries again: Dell, Hewlett-Packard, and Toshiba have recalled 100,000 Sony laptop batteries that were made between October 2004 and June 2005 after reports of about 40 incidents of them overheating. The reasons for the recall are the same as a recall a couple of years ago, but the number of batteries involved is much smaller than the 9.6 million recalled then.

5. Are design issues to blame for vote 'flipping' in touchscreen machines?: E-voting machine vendors defend how their hardware is designed and emphasize that voters who find that touch-screen machines are "flipping" their votes — changing them to a candidate they say they didn't vote for — or who experience other glitches should immediately contact poll workers to let them know of the miscue. The issue of vote flipping has arisen during early voting in some states and has left some voting watchdog organizations concerned that such technical difficulties combined with expected high turnouts could cause big problems on Election Day next Tuesday.

6. IT slashes budgets, starts layoffs: Exclusive CIO survey: The IT blood-letting is beginning — an exclusive CIO survey finds that 40 percent of CIOs expect to cut budgets because of the faltering economy, with contractors and discretionary tech projects among the first areas to be slashed. An additional 34 percent of CIOs aim to keep their IT budgets the same as a year ago, the October survey of 243 CIOs found. The percentages of CIOs who expect cuts or spending freezes has steadily increased across a series of studies done by the magazine in March, July and October.

7. Microsoft lays out Silverlight ambitions: Also at the Microsoft PDC, the company laid out its plans to continue improving the Silverlight platform, its competitor to Adobe's Flash. The company says a major update is due next year that will include offline capabilities and richer graphics support, among other upgrades.

8. Google settles copyright lawsuits with publishers, authors and Google agreement with publishers prompts a partial Harvard pullout: Google settled lawsuits filed by major publishers and authors contending that the company's scanning and indexing of copyright books without permission was tantamount to violating copyright on a massive scale. Google had claimed it was protected by the principle of fair use because only snippets of text for such books were displayed to match search queries. The Authors Guild and the Association of American Publishers strongly disputed that argument. The settlement came after two years of negotiations, and its terms involve Google paying $125 million in exchange for the right to display more of in-copyright books. Harvard University responded to the settlement by saying it is partially withdrawing from its book-scanning deal with Google while it evaluates the settlement terms.

9. New Android apps a mixed bag, should improve: Some of the first applications for the Android mobile OS market crash the G1 phone and otherwise don't work so well. One application uses commands written in Chinese. But analysts expect that better applications will soon be out as developers work on more of them and as the Android open source developer community matures. Android is Google's mobile OS and so far is available on just the G1 phone, which T-Mobile USA started selling last week.

[ Special report: All about Google Android ]

10. 'Ruthless' Trojan horse steals 500K bank, credit card log-ons: A Russian cybercrime group has for almost three years maintained the Sinowal Trojan horse, which has stolen log-ons for more than 300,000 online bank accounts and about as many credit cards, RSA Security said. "The sheer enormity of this makes this unique," said Sean Brady of RSA. "And the scale is very unusual."

Deceptive advertising may be illegal in the U.S., but Yahoo's ad network appears to offer it to publishers on a menu of choices when they're deciding what ads to run on their Web sites.

Yahoo Right Media's Direct Media Exchange gives publishers the option of running or blocking several different types of ads, based on their "deceptiveness."

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These ads include graphical advertisements that are designed to look like fake error or download messages or look like genuine Windows dialog boxes. Also included are ads that have phony "close window" buttons or pull-down menus that actually take the user to a Web site instead of closing the window or producing a pull-down menu. Direct Media Exchange also categorizes deceptive ads by language, letting publishers filter out "deceptive or questionably realistic offers," or "free" offers that do not disclose what a consumer might have to do to qualify for this free offer, according to the company's Web site.

According to data on the Direct Media Exchange Web site, viewed by the IDG News Service, these "Free with no disclosure language" ads can make up close to 18 percent of Right Media's ad inventory at certain times.

Advertisers like these types of ads because they are effective. Last month, researchers at North Carolina State University found that computer users have a hard time distinguishing between fake Windows warning messages and the real thing. In an experiment that tested the responses of 42 Web-browsing university students, they found that almost two-thirds of them would click "OK" whenever they saw a popup warning, whether it was fake or not.

Right Media argues that it is simply a technology offering, designed to create an open marketplace for advertisers and publishers. "The Exchange doesn't make a judgment on that type of ad category," said Yahoo spokeswoman Kristen Wareham. "It's up to the publisher to select the type of ad that works on their page."

Yahoo should refuse to run deceptive ads on its network, said Ben Edelman, an assistant professor at the Harvard Business School who studies Internet marketing practices. "It's hard to defend these ads' tactics. They intend to deceive, and by all indications they succeed," he said. "They have no proper place in Yahoo's ad network."

Yahoo bought Right Media for about $700 million last year, looking to strengthen its position in its fight with Google for online advertising dollars. The network provides a marketplace for Web publishers who have been unable to fill all of their advertising spots, allowing unused ad inventory to be sold at auction to advertisers.

Government officials charged with enforcing deceptive advertising say that while the ads on Direct Media Exchange ads may be dubious, they may not be bad enough to warrant an enforcement action.

"Any type of advertisement that is likely to deceive consumers acting reasonably under the circumstances could be deceptive," said Rick Quaresima, an assistant director in the U.S. FTC's Division of Advertising Practices.

But the FTC looks at individual ads on a case-by-case basis, he said. And while ads that trick a consumer into visiting a Web site may be annoying, the ones that deceive in order to sell a bogus or harmful product, such as malicious antispyware software, are a top concern. "We're certainly more concerned with the cases of deceptive advertising that could cause tangible consumer harm or consumer injury. That would be where we would prioritize our enforcement efforts."

These deceptive ads present a dilemma for Right Media, said Washington State Assistant Attorney General Katherine Tassi.

On one hand, Right Media is providing a service to publishers by giving them a way to exclude these ads, on the other, the services do expose "Right Media to some liability for essentially facilitating the transmission of deceptive advertisements," she said.

If Right Media simply dropped this type of filtering, it could make things worse for consumers by inadvertently encouraging unscrupulous advertisers to sneak their deceptive ads into the marketplace.

And enforcement agencies like the Washington State Attorney General are unlikely to hold ad networks, rather than advertisers themselves, accountable for deceptive ads, Tassi said.

One Web publisher said that while he thought that deceptive ads should be banned outright, he appreciated what Right Media is trying to do. "They are very forward when it comes to the kind of filters they allow you to use," said Sanford Liu, director of Interactive with Supernova.com, a music community Web site. "This is something that most other sites do not have."

This story was updated on October 31, 2008